Japan’s Sumitomo Mitsui Banking Corporation (SMBC) will acquire a 4.5% stake in Kotak Mahindra Bank Ltd. The Tokyo-based bank will acquire the stake for Rs 1,366 crore ($295 million) in a deal expected to be closed by the end of September.
Kotak Mahindra is India's fourth largest private sector banking and financial services player by market capitalization. SMBC is the core financial institution of Sumitomo Mitsui Financial Group, the second largest banking group in terms of market cap in Japan with approximately $1.37 trillion of total assets and $3.02 billion of net profit.
The development comes after Dutch major ING exited its investment in Kotak Mahindra Bank by selling its entire 3.07% stake through a bulk deal for Rs 801.3 crore ($172.5 million) last week.
According to the statement, SMBC intends to co-operate with Kotak Mahindra to develop new cross border business opportunities in India, in areas such as asset management, alternate assets, securities and investment banking, subject to regulatory and business considerations. Sumitomo Mitsui plans to boost overseas business as a percentage of banking profit to 30% from 20% last year, focusing on Asia, President Teisuke Kitayama said in May, a Bloomberg report said.
According to the MoU, Kotak Mahindra will make preferential issue to SMBC of 16.4 million shares, which amounts to approximately 4.5% stake on a post-issue basis. The proposed investment is at a price of Rs 833 per share. The regulatory floor price as per SEBI guidelines is about Rs 771 and the closing price on June 29, 2010 on NSE was Rs 744.55, a statement from Kotak said.
Uday Kotak, vice chairman & MD, Kotak Mahindra Bank, said, "We are delighted to welcome a reputed and large global financial institution of the stature of SMBC as our shareholder, as the Indian financial services industry continues its high growth trajectory. We see this as a significant opportunity for two financial conglomerates to leverage their strengths to serve the Indo-Japan corridor across a range of financial services."
The banks plan to work together in developing investment banking, asset management and securities business in India. Mumbai-based Kotak Mahindra employs about 20,000 people and had total assets of 551.2 billion rupees as of March 31, according to the statement.
SMBC and other major Japanese banks are seeking partnerships with local banks in Asian countries as growth prospects at home are weak, hoping this will expand their overseas customer base beyond Japanese clients working abroad, Reuters reported.
SMBC has tie-ups with local banks in Hong Kong, South Korea, Indonesia and other Asian markets, including a 15% stake in Vietnam Export Import Bank.